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i. Employer's Salary Policy As to All Employees
Courts have considered salaries paid to other employees of a
business in deciding whether compensation is reasonable.
Home Interiors & Gifts, Inc. v. Commissioner, 73 T.C. at 1159.
We look to this factor to determine whether the Officers were
compensated differently than petitioner's other employees merely
because of the Officers' status as shareholders. Owensby &
Kritikos, Inc. v. Commissioner, 819 F.2d at 1322-1323. A
reasonable, longstanding, and consistently applied compensation
plan, for example, is evidence that compensation is reasonable.
Elliotts, Inc. v. Commissioner, supra at 1247.
Petitioner generally offered its employees an amount that, in
its board's judgment, was a competitive level of compensation
designed to secure and retain employees. Petitioner paid its
sales and purchasing staff a base salary, commissions, and
benefits. Petitioner paid its other employees a salary, some
benefits, and an occasional bonus. This factor favors neither
party. We consider it neutral.
j. Compensation Paid in Prior Years
An employer may deduct compensation paid to an employee in a
year although the employee performed the services in a prior
year. Lucas v. Ox Fibre Brush Co., 281 U.S. 115, 119 (1930); see
also R.J. Nicoll Co. v. Commissioner, 59 T.C. 37, 50-51 (1972),
and the cases cited therein. In order to do so, the employer
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